Vantage Viewpoint

Regulating Credit Card Interchange

The Credit Card Fair Fee Act (H.R. 5546) - creating an antitrust exemption for retailers allowing them to collectively negotiate agreements for the Interchange fees assessed on credit card sales - passed out the House Judiciary Committee on a 19 to 16 vote.

In a recent survey, consumers showed popular support for the Credit Card Fair Fee Act. However the Federal Trade Commission stated its belief that this legislation will reduce competition and harm consumers. The U.S. Department of Justice also presented a case against legalizing collusion among the nation's largest retailers at the expense of consumers.

If a merchant cartel forces down how much they pay, it only stands to reason that the costs will get shifted to cardholders (for example increasing interest rates and fees and decreasing rewards). This is what has happened in two places where Interchange has been regulated (Australia and Spain).

And there are other unintended consequences to consider.The nation's biggest and most profitable retailers will undoubtedly be able to negotiate favorable rates but will small business be able to compete? The concern is that the legislation would help large merchants achieve an even more significant competitive advantage, while hindering smaller retailers. The current Interchange fee system provides community banks the ability to vigorously compete against large national bank institutions to offer card acceptance services to merchants of all sizes. The legislation would negatively impact the ability of credit unions and community banks to provide competitively priced merchant services.The bill faces hurdles including a pending Senate version S. 3086. And there is broad consensus among economists and policymakers that exempting businesses from antitrust laws is a bad idea. But then again it is an election year.